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4 things you must do before your child turns 1 year old

Do you have a son / daughter? Are you expecting a baby? Here are the four things you must do before your kid turns one.

Having a child is something that provides you great joy. However, it also brings lot of additional responsibility – including financial responsibility.

Here are the 4 things you must do to secure your child’s financial future.


Re-assess your life insurance cover

An addition of a child in your family means an addition of a dependent – someone who is totally reliant on you for all needs, including financial needs.

This means one extra person to provide for in case of your untimely death. Therefore, you must re-examine you life insurance cover, and buy more insurance if necessary. This is something that you simply can’t ignore.

Remember, term insurance is the cheapest and best form of life insurance.


Open a bank account in your child’s name

You would want to save for your child, and once your kid grows up a little, you would also want to inculcate saving habit in him / her.

What better why to do this than to open a bank account in your child’s name?

You can open a savings account for a minor in any bank, with you and / or your spouse as the guardian.

You can regularly deposit money into this account to save for your child. Whenever you want to invest for your child, you can use the money from this account.

Segregating savings for your child in this way would help you in one big way – if you are ever tempted to use the money on things like a car / LCD TV / vacation / etc, you would know that you are taking away the money meant for your child’s future – in most cases, this should prevent you from splurging the money unnecessarily!


A tip

You surely get lots of cash gifts when your son / daughter is born. Its Rs. 100 from here, Rs. 50 from there – small amounts individually, but they surely add up to a decent sum. Why not start saving for your child by depositing this entire amount in your son’s / daughter’s own bank account?


Income tax (IT) implication

Please remember that for any income generated in the name of a minor, the clubbing provisions of the income tax act apply.

Generally speaking, for the purpose of calculation of income tax, any income generated in the name of a minor is added to the income of his / her parent. Which parent – father or mother? Its simple – whoever earns more!

So, please don’t see this separate bank account as a means to save tax – it is just to segregate savings for your child.


Open a PPF account

A Public Provident Fund (PPF) account is an excellent avenue for making risk-free, assured-return, tax-free investments.

The PPF scheme is backed by the Government of India, so it is absolutely safe. The returns in the PPF account are fixed. And, it follows the EEE taxation regime – you get income tax benefits for investing in it, the interest earned is tax free, and there is no tax even at the time of withdrawal!

(Please read “Taxation Regimes – EEE EET ETE TEE – What do these mean” to know more about various taxation regimes)

And you can invest worry free in PPF because the EEE taxation is going to remain in place even after the Direct Tax Code (DTC) comes into effect.

To know everything about PPF, please read the detailed article “Public Provident Fund (PPF) – Plan Your Retirement and Save Tax”.


Update your financial plan with new goals

You need to update your financial plan with goals related to your child – like his / her higher education, marriage, etc. Remember, the earlier you start saving for these goals, the lesser you have to save because of the effect of compounding.

And if you don’t have a financial plan in place already, you absolutely must get it created from an experienced and knowledgeable financial planner. You can have a look at “My Financial Plan” – the financial planning service provided by

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